(Bloomberg) — Argentina’s central bank announced it will slow the pace of the peso’s controlled depreciation to 1% a month starting in February after fresh inflation data paved the way for the policy change.
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Tuesday’s move marks President Javier Milei’s first shift in the currency policy, known as a crawling peg, in more than a year since taking office. Consumer price increases have been hovering near their lowest since 2020, with the president and his officials pledging in November to slow the peg to 1% a month if inflation remained constant through the end of 2024.
“The exchange rate adjustment continues accomplishing its role as a complementary anchor in inflation expectations,” the central bank said Tuesday in a statement sent by text message.
Government data released earlier Tuesday showed prices rose 2.7% in December from November, the third straight month below 3% and in line with the median estimate from economists surveyed by Bloomberg. Annual inflation slowed to 117.8%, from a peak of near 300% last year.
Milei’s popularity remains high ahead of mid-term elections due in October largely because he brought annual inflation down while keeping the exchange rate relatively steady. Argentines are increasingly positive about the economy on his watch, but any currency policy changes risk stoking inflation and jeopardizing his party’s standing with voters.
His government had kept the crawling peg at 2% a month despite inflation surpassing that figure. While markets broadly applaud Milei’s other economic accomplishments, economists say the currency policy is overvaluing the peso, a recipe that under past governments led to abrupt devaluations and political upheaval.
Although Milei slowed the peg, he’s also committed to moving toward a “flexible exchange rate” once he lifts Argentina’s currency controls sometime this year. The last time an Argentine government lifted controls and let the currency float in 2015, it backfired, inflation surged and former President Mauricio Macri faced early setbacks in his one-term presidency.
Milei’s team is weighing whether to introduce a managed exchange rate — “dirty float” — once it lifts currency and capital controls where the peso could freely float under strict parameters that haven’t yet been defined.
–With assistance from Rafael Gayol.
(Updates through with central bank FX policy change.)
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